Experienced utility Notes for October 27

Main points

Kahneman and Krueger seek to revive the nineteenth-century version of utility: actual felt happiness rather than revealed preferences. Specifically, they claim that it is possible to measure what they call “experienced utility” without using inaccurate reports of “remembered utility.”

They also claim to be able to construct a cardinal index of interpersonal utility, the U-index. What that means is that their index has three features:

It measures experienced utility, feelings of happiness and unhappiness.

It compares the happiness and unhappiness of different people. That’s what makes it an index of interpersonal utility. An index of intrapersonal utility, by contrast, would compare the states of a single person.

Its numbers tell you how much happier one person is compared with another. That’s what it means to call it a cardinal index. An ordinal index, by contrast, would just tell you the order in which they are ranked and not what separates one place in the index from the next.

One interesting feature is that the U-index involves an ordinal index of intrapersonal utility but a cardinal index of interpersonal utility. People are asked whether they are in an unhappy state at any given point during the day. That gives an ordinal measure: “are you unhappier than normal?” rather than “how much unhappier than normal are you?” They get a cardinal measurement of interpersonal utility because they compare the amount of time different people spend in an unhappy state: 2 hours is twice as long as 1 hour, e.g..

Questions

Daniel said it wasn’t obvious to him that remembered utility is a less accurate measure of someone’s happiness than experienced utility is. A person who runs a marathon, for instance, experiences a lot of pain all day. But, looking back at the end, the runner will typically express elation at having done it (or so I’m told). Why is it obvious that this is a mistake?

Ben and Nina thought the U-index could be misleading. Nina pointed out that the U-index counts someone who is bored 20% of the day as having been twice as unhappy as someone who was in intense pain for 10% of the day. Ben made a similar point in a more mathematical way that I won’t try to summarize. Essentially, it’s that the U-index shouldn’t discard information about how pleasant or unpleasant an experience is for an individual. If you spend all day in a mildly unpleasant state and then have a big burst of happiness at the end, the U-index will count you as having had an unhappy day. But that isn’t always right, as the example of the marathon runner illustrates.

Policy implications

Kahneman and Krueger listed a number of policy implications that, they claim, would follow from using their index in attempts to improve the public welfare. One example, bolstered by the chart Prof. Brown distributed, concerns the trade-off between inflation and unemployment. Unemployment makes people significantly more unhappy than inflation does, so we should prefer fuller employment even at the cost of some inflation insofar as we care about happiness.

They also mentioned that commuting time makes us miserable and that social contacts make us happier than buying stuff does.

I quickly skimmed an article by Richard Layard on the topic of the policy implications of happiness research. One point he made is that a society that sought to promote happiness (or reduce unhappiness) would spend a lot on mental health services. That seemed like a good point to me. The article is very well written to boot.** Richard Layard, “Happiness and Public Policy: a Challenge to the Profession,” The Economic Journal 116 (2006).